UK: Today, the Chancellor of the Exchequer Jeremy Hunt has outlined his Spring Budget.
According to Hunt, the UK is expected to avoid a technical recession in 2023, and that inflation is set to fall by 2.9 per cent by the end of the year (inflation is currently at 10.1 per cent).
Hunt said that “high inflation is the root cause” of the strike action currently affecting many industries in the UK. The rail and tube strikes taking place across the UK this week are expected to cost hospitality as much as £600 million, according to UKHospitality.
Contents of the Budget which affect hospitality includes:
• From August, alcohol taxes on wines will rise by up to 50p a bottle but the duty charged on draught beer will be up to 11p lower than the duty in supermarkets.
• The annual tax-free allowance for pensions will rise from £40,000 to £60,000, and the Lifetime Allowance (a cap on the amount that workers can accumulate in pensions over their lifetime, previously set at £1.07 million) will be abolished.
• From April, corporation tax paid by businesses on taxable profits over £250,000 will rise from 19 per cent to 25 per cent.
• For smaller businesses, the Annual Investment Allowance has increased to £1 million. Hunt said that 99 per cent of all businesses will be able to deduct the full value of all their investments in IT equipment, plant or machinery from that year’s taxable profits.
• 30 hours of free weekly childcare is being extended to cover children below the age of three from April 2024. It will eventually cover all children from the age of nine months, expected to come into effect September 2024. It will only apply to households where both parents are working, and within term-time (38 weeks of the year).
• A new ‘Returnerships’ skills offer will be granted to over-50s wanting to return to work in a new sector, and a voluntary employment scheme for disabled people worth £4,000 per person will fund 50,000 job placements every year.
• The Energy Price Guarantee, which limits household bills at £2,500, will be extended until the end of June. Whilst this does not apply to businesses, protecting consumers’ pockets until the price of energy drops may lead to an increase in consumer spending.
Contents of the Budget which affects urban living includes:
• 12 new investments zones will be introduced across the UK, which Hunt described as “potential Canary Wharfs”. Areas include the West Midlands, Greater Manchester, Liverpool and Teeside, whereby successful applicants will be granted £80 million in support.
• The UK Government will invest £200 million in local regeneration projects across England.
• £400 million will also be made available for new levelling up partnerships in areas such as Redcar, Cleveland and Blackburn, worth up to £8.8 billion in over five years.
Hospitality leaders respond to the Spring Budget
Sam Martin, CEO of Peckwater Brands, said: “Hospitality is a lynchpin of trade and employment, and can be a major driver for economic growth and recovery. Yet the sector is also more significantly impacted by today’s challenges than most, as they are both energy intensive and subject to the inflated price of goods, notably food costs.
“To allow hospitality to thrive, businesses required a major overhaul of the business rates system, a shot in the arm to staffing, and increased support with energy costs. The measures laid out for hospitality in the Spring Budget fall short of the level of support that industry leaders have been crying out for over the past year.
“Hospitality can be a driver for the economy and a source of both jobs and tax revenue, but without the right conditions to grow, we will likely see businesses shut down by high business rates, unaffordable tax bills and short staffing. Short-term support with energy bills may keep the lights on in the coming months, but without further action, the possibility of a return to pre-pandemic levels appears slim. I only hope more can be done to prop up businesses affected by rising costs, and that people will continue to support pubs, bars and restaurants in their communities.”
Lionel Benjamin, AGO Hotels co-founder, said: “With the continuing economic struggles facing SMEs, businesses were looking at today’s Budget to provide a lifeline. It fell short.
“It was disappointing that the Chancellor did not reverse next month’s corporation tax rise. With double-digit inflation and rising bills, this means further costs for businesses which we are trying not to pass onto the consumer, but it is becoming more difficult not to do so, and in the coming months we may see more businesses close their doors.
“Hunt did make announcements aimed at boosting the economy including 12 new investment zones, regeneration projects in key town centres and business rate retention, giving local authorities more control on spending. However, the devil will be in the detail and we believe that specific incentives are needed around the regeneration of city centre buildings, particularly those which are closed, to be converted into hotels.
“At AGO Hotels we are calling for a reduction of output VAT to 10 per cent, widening the scope of capital allowances offered to encourage development and ESG investments, and a comprehensive review and reduction of the widely outdated system of business rates. For the hospitality sector to thrive and survive we need more.”
Clare Anna, chief commercial officer, London Rock Partners: “The most disappointing piece was the lack of clarity from the Chancellor on the continuation of the rebate for utilities across the hospitality sector. The cost of utilities is of most concern to UK hoteliers at present.
“It was however good to hear about the additional incentive around childcare, as bringing parents – especially woman – back into the hospitality workplace with flexible and affordable solutions is well overdue.”
James Shorthouse, head of alternative markets at Colliers, said: “The pub industry, and its customers, will raise a glass to the Chancellor this afternoon as he froze the duty on draught beer so that customers will pay less tax on a pint in their local than when grabbing a beer from the supermarket shelves. But whilst operators will welcome the extra sales that the price differential will generate, the sector will also see that this was a missed opportunity for the Chancellor to provide meaningful support to businesses by freezing or even scrapping business rates, or by introducing a permanent VAT reduction for the hospitality.
“The budget did acknowledge that the leisure sector plays a crucial role in the economy with the continuation of reliefs for theatres, museums and orchestras, as well as support for leisure centres and swimming pools, but whilst pubs did take some cheer from the beer duty controls, there was little for the UK’s independent hotels, restaurants or café owners to celebrate.”
Joe Stather, VP market lead, operational real estate, Questex, said: “It is a mixed picture for hospitality, with some moves set to incentivise investment amidst the rise of corporation tax from April. The announcement of tax deductions on investments into IT, plant, machinery, and technology, for example, will support those looking to deploy CAPEX and optimise their existing assets.
“The corporation tax rise, alongside a possible change to the requirements for a REIT (Real Estate Investment Trusts) could also make REITs more attractive as we head into spring. Whilst we don’t have many UK hospitality-focused REITs this may be something we see change.
“The creation of 12 investment zones in England, which are likely to support pockets of increased economic activity and therefore accommodation demand, will also increase opportunities for hospitality investors and developers, particularly those with experience in regeneration and partnering with the public sector.
“Predictions that the UK’s inflation rate is to fall to 2.9 per cent by the end of this year will add to growing optimism within the hospitality sector. At the same time, incentives to encourage more people into work could provide the industry with the labour support it desperately needs to grow.
“Retaining the price cap on energy for households is also good news for hospitality as it will loosen the financial squeeze and give consumers more available cash to spend on leisure.”
Stuart Houston, finance director at RBH Hospitality Management, said: “We continue to campaign for a direct government addressal of the hospitality industry and its ongoing challenges. While the budget failed to do this, there are hopefully a few indirect changes that will positively impact the sector.
“With labour shortages continuing to put a strain on hospitality businesses, increasing childcare funding and pension reforms should help combat depleting labour supply. These are, however, long-lead solutions to what are incredibly current issues and therefore don’t address the immediate crisis for many businesses.
“The ‘draught relief’ scheme to freeze tax on beers is positive in stimulating hospitality F&B outlets, though albeit diluted by the increase on other wines and spirits later this year.
“The increase of corporation tax to 25 per cent had likely reduced the overall attractiveness in UK investment and transaction volumes on hotels. A significant uplift to capital allowances goes someway to counteracting this as investors will be able to offset a larger portion of their investment against taxable income. This could make it easier to fund new hotel development or regeneration projects with higher net profit potential.”